Credit slowdown seen in 90% sectors; auto up by 3-4%: RBI data

The only anamolies to the trend were loans given to the auto, auto components sectors and wood products, which saw a 3-4% growth in loans this January, compared to the same period last year.TNN | March 20, 2017, 21:08 IST

The only anamolies to the trend were loans given to the auto, auto components sectors and wood products, which saw a 3-4% growth in loans this January, compared to the same period last year.

"Credit slowdown could be the impact of demonetisation. The decline happened right after - but that doesn't necessarily square up with GDP and corporate growth numbers. Corporates, of course, have been better managing their inventories - with consumer demand slowing down -- they have kept a sharp tab on expenses and have ensured they did not borrow too much post-demonetisation. There has also been a general demand in working capital," said Abheek Barua, chief economist, HDFC Bank.

"Another phenomenon is that corporate bond issuance has gone up. I think the lending that is happening on the term-loan side by banks was substituted by corporate bond issuance. We haven't been able to fully understand, the system-wide impact of demonetisation," he added.

Loans from mining and quarrying saw the biggest drop in terms of volume to Rs 25.86 lakh crore from Rs 27.24 lakh crore. Another big contributor to the credit dip was the slowdown in infrastructure lending to Rs 9.02 lakh crore from Rs 9.88 lakh crore.

The food processing sector as a whole saw a 12.4% decline year-to-date for FY2017-17; with the steepest declines coming from sugar (-26.6%).

"Rather than being sector-specific, there has been a larger slowdown in credit because of macro-economic conditions. It is a trend reflecting the overall slowdown in lending and it will take a few more quarters before credit growth takes off," said Parthasarathi Mukherjee, MD, Lakshmi Vilas Bank.

Infrastructure lending was down by 6.5%, with sharp declines in power (-8.4%) and telecommunication (-10.3%). However, given the government's push for increasing India's road network and highways, lending for road projects saw a marginal growth of 1.5%

"Certain sectors like infrastructure are bound to take a bigger hit. Being labour intensive, there could have been a problem with paying workers in cash. Projects could have slowed down," said Barua.